Regulatory Alerts2025-12-16
Report for the RBNZ 2025 Review of key capital settings
John Vickers advises the Reserve Bank of New Zealand against adopting Option 2 for bank capital settings due to insufficient confidence that Loss-Absorbing Capacity would effectively absorb losses during a crisis. He concludes that Option 1 is not superior to current policy as it yields a negative net effect on GDP, while Option 2+ is identified as the clearly superior alternative among the proposed reforms. The report further recommends maintaining the current counter-cyclical capital buffer target and replacing AT1 capital requirements with CET1 rather than lower-tier instruments to ensure financial stability.
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